Garnet Capital Advisors Blog

April 16, 2015

Puerto Rico banking industry faces uncertain future

Puerto Rico's banking industry has undergone some seismic shifts in the aftermath of Doral Bank's failure earlier this year. While this troubled bank entered receivership, several competitors benefited from the situation, bolstering their market share by snapping up its branch locations, loans, deposits and mortgage servicing rights. 

Banco Popular extends market share
Banco Popular added eight new branch locations and $612 million worth of deposits in Puerto Rico, according to American Banker. While the bank was already the market leader in deposits - with Federal Deposit Insurance Corp. data showing it held 36.6 percent of the deposits in Puerto Rico - Banco Popular was able to further bolster its footprint. 

The bank was also able to pick up roughly $848 million in performing residential and commercial loans in the U.S. territory, as well as $5 billion worth of mortgage-servicing rights related to government sponsored entities, American Banker reported. 

After obtaining the aforementioned assets, Banco Popular continued its shopping spree by orchestrating a few more deals, according to American Banker. With its winnings from the Doral Bank failure and the aforementioned transactions, Banco Popular could further ensure its place in the Puerto Rican banking market. Taylor Brodarick, an analyst at Guggenheim Securities, spoke to how Doral Bank's going into receivership will impact the territory's banking sector.

Positive development
"I think it's good for the industry on the island," he told American Banker. The inevitable fate of Doral "had been looming as a likelihood for at least the past year. Each part of the bank that was sold off went to an appropriate home." 

Brodarick told American Banker that banks in Puerto Rico have had a hard time adding deposits, frequently having to use brokered accounts for funding, and market observers consider it a positive development any time a bank in the territory can add core deposits. In addition, he stated that Banco Popular's move to buy some of Doral Bank's assets was definitely beneficial. 

"They have market constraints in Puerto Rico, so it's harder to turn over new stones," he told American Banker. 

Going forward, the territory's banking industry could experience greater consolidation. As banks combine, their loan portfolios could change, and this development could have implications for anyone interested in purchasing these assets.